Key takeaways
- Use accessible cash and cash movement rather than accounting profit alone.
- Calculate both gross and net burn.
- Maintain a dated forecast because monthly averages hide timing.
- Update the estimate after material operating or financing changes.
Use cash, not only accounting profit
Runway is a liquidity measure. Use accessible cash and monthly cash inflows and outflows. Revenue recognized but not collected does not fund payroll until cash arrives.
Exclude restricted funds that cannot support operations. Include debt service, tax payments, capital purchases, and other cash obligations when they are part of the modeled monthly burn.
Calculate gross and net burn
Gross burn is monthly cash expense. Net burn subtracts monthly cash revenue. If expenses are $85,000 and cash revenue is $55,000, net burn is $30,000.
Runway equals available cash divided by net burn. A $300,000 balance at $30,000 net burn produces ten months under constant assumptions.
Averages can hide timing
Annual prepayments, delayed receivables, payroll dates, quarterly taxes, and one-time purchases can create a cash low point before the average runway ends.
Maintain a week-by-week or month-by-month cash forecast. Use runway as a summary and the dated forecast for payment decisions.
Run operating scenarios
Model planned hiring, cost reductions, slower collections, lower sales, and delayed financing. Identify the point at which action must occur rather than waiting for cash to become critical.
A cash-positive result under current averages does not eliminate liquidity risk. Growth can consume working capital, and one-time obligations may not appear in monthly operating expense.
Update the estimate frequently
Recalculate after each monthly close and whenever revenue, expense, hiring, fundraising, or collection assumptions change materially.
Runway is not a promise that the business will operate until a particular date. It is a decision aid based on entered assumptions and should be reviewed with current financial records.
Frequently asked questions
Should receivables count as cash?
No. Include collected cash in a runway balance and model expected receivable timing separately in the cash forecast.
What if the business is cash-positive?
A finite net-burn runway is not produced, but one-time obligations, working capital, and revenue risk still require cash planning.
Sources and further reading
These external resources provide additional context. CalcScoutHQ applies the formulas and limitations stated on this page and reviews links at publication.
- Manage your business finances — U.S. Small Business Administration
Test a base, conservative, and optimistic scenario with the related calculator. Keep definitions and periods consistent between cases.
Open Cash Runway